Open Country opens butter plant
When American retail giant Cosco came to audit Open Country Dairy’s new butter plant at the Waharoa site and give the green light to supply their American stores, they allowed themselves a week for the exercise.
Rabobank’s New York-based global dairy strategist Tim Hunt – recently in Australia presenting to local industry – says the United States, long focussed on its own domestic market, is reorienting towards the global market place, attracted by the allure of better returns across some product categories.
Until recent times, the entire US dairy industry had been dedicated to servicing its own lucrative and growing domestic market, with countries like NZ and Australia trying to gain access through bilateral trade agreements.
“Historically, the US dairy industry lived in a fortress,” Hunt said.
“It had a very large, affluent domestic market, which grew strongly and had very high prices. It was protected from the international market by high tariff barriers and had government support.
“But US dairy market growth has slowed in recent years, while the commodity price boom has seen international prices rise above domestic US market prices, making export returns more alluring for US dairy players.”
This, in effect, was turning the US from ‘the hunted to the hunter’ as its dairy industry sought to compete in the more attractive global marketplace, Hunt said.
“The US dairy industry is becoming increasingly cost competitive in export markets due to a combination of its large-scale farm operations, easing feed costs and a lower US dollar, while it is also beginning to align products to suit the global market,” he said.
Mr Hunt said US dairy exports had already begun to steadily grow as a result, with, for example, milk powder exports increasing from about 300,000 tonnes in 2007 to 500,000 tonnes in 2012, and cheese exports going from about 100,000 tonnes to more than 250,000 tonnes in the same period.
But Hunt added it was not all smooth sailing for the US as they reoriented towards world markets, with a number of obstacles to overcome.
“With the entire US dairy industry having developed to service the domestic market, they are not aligned to the requirements of exporting dairy,” he said. “Essentially, they have the wrong plants and they make the wrong products for global market exports. In addition, US regulation makes exporting hard for the industry.”
And there are also market access and customer relationship issues, Hunt said. “The US dairy industry doesn’t have good access to several important markets and they also have relatively weak relationships with offshore customers,” he said.
However, progress is being made towards the US becoming a better exporter.
“Plants are being tweaked to make export products and new plants are being built to service export markets,” Hunt said.
“Market access is improving and relationships with offshore customers are being strengthened.”
And with Australia largely having lost its cost of production advantage in world dairy markets, it will be increasingly likely to compete head-to-head with the US in coming years, Hunt warned.
“Maintaining Australia’s edge in post-farmgate processing and marketing will be crucial to sustaining returns on fram,” he said.
